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Improved volume, outlook positive

Coal India Ltd (CIL) is the largest coal producer in the world. Its output in FY24 stood at 774 million tonne (MT).

* In Q1FY25, CIL’s consolidated revenue grew merely 0.3% YoY, driven primarily by higher sales via the fuel supply agreements (FSAs), partially offset by lower revenue from e-auctions.

* EBITDA increased 5.6% YoY and margin expanded 160bps YoY to 39.3% owing to low cost of materials consumed.

* CIL’s Q1 earnings were decent led by a notable increase in volume. Going forward, we expect the company to sustain sales volume growth, underpinned by enhanced production volume and new contract wins. Therefore, we upgrade our BUY rating on the stock with a rolled-over target price of Rs. 589 based on 6.5x FY26E EV/EBITDA.

Improved raw coal offtake drives top line growth

In Q1FY25, CIL’s consolidated revenue saw a modest 0.3% YoY growth to Rs. 33,170cr, primarily driven by increased coal production, offtake and overburden removal. CIL exceeded its production target in Q1 FY25, producing 189.3 MT of coal, an 8% YoY increase. This marks a 100% achievement of its target, with all 7 producing mines showing growth and 5 exceeding their targets. Notably, revenue via the FSAs grew 2.1% YoY, primarily owing to a 2.9% YoY increase in volume to 172.43 MT, partially offset by a 0.8% YoY decline in average selling price (ASP). Conversely, revenue from e-auction declined 7.2% YoY, resulting from a 35.5% YoY reduction in average eauction prices to Rs. 2,411 per tonne. However, e-auction sales volume increased a significant 44.0% YoY to 23.18 MT. Overall, the blended ASP declined 5.8% YoY to Rs. 1,629 per tonne in Q1FY25.

Margin widened with low COGS

EBITDA grew 5.6% YoY to Rs. 14,339cr. EBITDA margin widened a significant 160bps to 39.3% primarily driven by lower cost of sales (-11.6% YoY) and higher other operating income (+13.2% YoY). As a result, profit after tax increased 4.1% to Rs. 10,959cr, primarily owing to higher share of associates, partially offset by an increase in taxes.

Key highlights

*  In May 2024, CIL established a subsidiary, Bharat Coal Gasification and Chemicals Ltd (BCGCL), to pursue the coal-to-chemicals business. CIL holds 51% in the new entity, while Bharat Heavy Electricals Ltd (BHEL) owns the balance 49%.

*  The company commenced operations of a non-coking coal washery, with a capacity of 10 million tonne per annum (MTPA), on April 15. The unit entailed an investment of Rs. 398cr.

*  CIL has been awarded the contract to mine the Khattali Chotti graphite block in Madhya Pradesh, marking its foray into non-coal mineral mining. The move signals a strategic expansion of its operations beyond coal and into the graphite mining sector.

Valuation

CIL's Q1FY25 earnings were decent, with volume increasing despite low revenue from e-auctions. The company continued to augment its production capacity while implementing cost control measures, which should support its long-term revenue prospects. Furthermore, the company is poised to expand its mining presence as it has won the Khattali Chotti graphite block in Madhya Pradesh, a move that could diversify its mining assets. We, therefore, upgrade our BUY rating on the stock with a revised target price of Rs. 589 based on 6.5x FY26E EV/EBITDA

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